Institutional Plan Sponsors Post Fourth Quarter Gains

A surge in U.S. equities created a positive ending to a mixed year for most plans. 

Institutional investors eked out a gain overall for the full year 2011, with a median return of 0.8% for all plans in the Northern Trust Universe. The results differed by segment, however. Corporate ERISA Pension Plans gained 2.3% at the median while the other two segments were practically flat, with the median public fund up by 0.9% and the median plan in the foundations & endowments segment down by 0.6% for the 12 months ending December 31, 2011.

“Global market volatility contributed to an up-and-down year for institutional plan sponsors in 2011, with two quarters of moderate gains followed by a nearly 10% drop in the third quarter and a sharp recovery at year-end,” said William Frieske, senior performance consultant, Northern Trust Investment Risk & Analytical Services. “Last quarter’s positive results were in line with historical trends in the Northern Trust Universe, with fourth quarter median returns typically being the highest in the calendar year.”

Corporate Pensions led in the fourth quarter with median returns of 5.6%, as Public Funds gained 5.4% and Foundations & Endowments advanced 4.2% at the median. U.S. equities were the primary driver of performance, with the median U.S. Equity Program in the Northern Trust Universe gaining almost 12% in the fourth quarter. International equity programs gained almost 4% in the fourth-quarter while fixed income programs were up 2%. In alternative asset classes, real estate gained 2%, while private equity was down 1.6% and hedge funds were down 0.4% for the three months ending December 31.

Asset allocation again played a key role in relatively wide range of one-year performance figures. Corporate pension plans had the largest allocation (nearly 35% at the median) to fixed income in the third quarter, buffering losses, and also the largest allocation to U.S. equity (nearly 37% at the median), which contributed to gains in the fourth quarter. Public funds performance suffered from a larger allocation to international equities (16%) while foundations & endowments’ larger allocation to hedge funds (7%) was a drag on performance.

More detail on asset allocation and performance of funds can be found on the Investment Risk & Analytical Services web page.

The Northern Trust Universe represents the performance of about 300 large institutional investment plans, with a combined asset value of approximately $689 billion, which subscribe to Northern Trust performance measurement services.